Engineering & Mining Journal

AUG 2017

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OIL SANDS
AUGUST 2017 • E&MJ 25 www.e-mj.com
US$8.5 billion (C$11.1 billion), compris-
ing US$5.4 billion in cash plus US$3.1
billion in Canadian Natural shares.
In addition, Shell and Canadian Natural
each paid Marathon Oil US$1.25 billion for
Marathon Oil Canada Corp., which held a
20% interest in AOSP. According to Shell
at the time, Canadian Natural has taken
over as operator of the AOSP mining op-
eration while Shell remains as operator of
AOSP's Scotford upgrader and the Quest
carbon capture and storage (CCS) project.
The AOSP — previously held 60% by
Shell, and 20% each by Chevron and Mar-
athon — includes the Muskeg River and
Jackpine mines and extraction operations
and the Scotford upgrader and Quest CCS
project. Its production capacity at both the
mines and the upgrader is 255,000 bbl/d.
Comments made at the time by Shell's
CEO, Ben van Beurden, threw some light
on the company's strategy. "This an-
nouncement is a significant step in re-
shaping Shell's portfolio in line with our
long-term strategy," he said. "We are
strengthening Shell's world-class invest-
ment case by focusing on free cash flow
and higher returns on capital, and prior-
itizing businesses where we have global
scale and a competitive advantage."
In other words, Shell did not see the
potential for making much money out of
its oil sand operations any time soon.
Shortly after Shell's move, Cenovus
Energy announced it was to acquire Con-
ocoPhillips' 50% interest in the FCCL
Partnership, the companies' jointly owned
oil sands venture that was operated by
Cenovus. The price paid totaled C$17.7
billion, made up of C$14.1 billion in
cash plus Cenovus shares, with the deal
including most of ConocoPhillips' Deep
Basin conventional oil and gas assets in
Alberta and British Columbia.
Two of the oil sands properties in-
volved, Foster Creek and Christina Lake,
are already in production, with capacities
of 180,000 bbl/d and 210,000 bbl/d re-
spectively, while the Narrow Lake prop-
erty remains at the engineering stage of
development.
"With the completion of this transfor-
mational deal, we now have full control of
our best-in-class oil sands projects and an
exciting new growth platform in the Deep
Basin that provides us with significant
short-cycle development opportunities
to complement our long-term oil sands
growth portfolio," said Brian Ferguson,
Cenovus president and CEO. "As a result
of this transaction, we've now doubled
our production and reserves base."
Reserves Trimmed
Not only have some of the majors been
voting with their feet, but the recent low
oil price has forced others to review their
reserve estimates and make appropriate
adjustments. The most significant of
these came from ExxonMobil, which to-
gether with its Canadian subsidiary Impe-
rial Oil, operates the Kearl oil sands mine.
In February, the company wrote down
the value of its oil and gas reserves by
19%, including 3.5 billion bbl at Kearl
and a further 200 million bbl at its Cold
Lake in-situ recovery operation. However,
as was subsequently pointed out in the
media, the removal of these reserves from
the "proven" category was more to do
with the way that the U.S. Securities and
Exchange Commission (SEC) requires
companies to categorize reserves than
anything else.
In essence, the SEC rules state that
companies must value their reserves
based on the average commodity price for
the preceding calendar year. By contrast,
comparable Canadian NI 51-101 criteria
permit companies to use seven- to 10-year
price forecasts when valuing their reserves
— the equivalent, as one commentator in
the Calgary Herald put it, of "the U.S.
method being akin to driving down the
highway while looking in the rear-view
mirror while Canada's approach is fixed
on the future."
Hence, given the low oil price during
2016, ExxonMobil had no option but to
remove virtually all of its oil sands re-
serves from "proven," with the opportuni-
Handling raw bitumen ore at Syncrude's Mildred Lake operation. According to Suncor, now its majority shareholder,
Syncrude achieved its best-ever six months of production in the second half of 2016.
Operations at Canadian Natural's Horizon mine, where the company ramped up production strongly last year and
already has an 80,000 bbl/d Phase 3 expansion scheduled for commissioning late this year.